BANGKOK—Thailand's military forcefully removed the nation's elected government two days after declaring martial law, posing new risks to a U.S. ally that is rapidly losing appeal to the investors and tourists who have fueled its economic growth.

Army leader Gen. Prayuth Chan-ocha made formal his power grab Thursday, taking over the duties of prime minister after failing to broker an end to a seven-month feud pitting the government against protesters who sought to replace it with a royally appointed administration.

Why is Thailand in turmoil? WSJ's Jason Bellini has #TheShortAnswer.

Washington declared the takeover a coup, which could prompt the U.S. to curtail cooperation and aid.

"While we value our long friendship with the Thai people, this act will have negative implications for the U.S.-Thai relationship, especially for our relationship with the Thai military," Secretary of State John Kerry said. The Pentagon said it was reviewing its military relationship with Thailand but no decisions had been made.

Thais awoke to a different landscape on Friday. Schools were closed and traffic was unusually light after an overnight curfew was lifted at 5 a.m. The army's Channel 5 network broadcast on all channels, interviewing citizens who said they were relieved by the takeover.

Footage showed armed soldiers patrolling train stations and inspecting pickup trucks carrying shipments of limes, oranges and other fruits in the northeast of Thailand, where support for the ousted, populist government remains strongest.

The military asked social-media operators to stop sharing messages that could provoke violence or fan opposition to the ruling military council, or risk suspension of service.

The coup adds a measure of instability to a rocky period for Southeast Asia. Vietnam and the Philippines are locked in confrontation with China over their competing territorial claims in the South China Sea, while Malaysia is reeling from the disappearance of a jetliner and Indonesia is about to elect its first new president in a decade.

After mediated talks fell apart, the Thai military ordered the acting prime minister, Niwattumrong Boonsongpaisan, and his predecessor, Yingluck Shinawatra, and other government officials to report to an army base.

Leading political figures were detained, and the military declared a 10 p.m.-5 a.m. curfew that sent commuters scurrying home and darkened the Thai capital's red-light districts.

On Friday morning, more than a hundred people were ordered to report to the military, including Ms. Yingluck's sister and brother-in-law, some government officials and key figures in the anti- and pro-government factions.

Thailand's army chief announced a coup d'état on live national television, two days after saying "this is not a coup" as he declared martial law. The WSJ's Ramy Inocencio reports on the announcement, the events leading up to it and the last time the kingdom's military seized power.

The coup marked a new level of dysfunction for what was long one of the world's fastest-growing economies. Protesters took to the streets in November with the mission of ousting a government loyal to the family of tycoon Thaksin Shinawatra, who was himself toppled as prime minister in 2006 and now lives overseas. In its place, the protesters wanted a royally appointed leader installed to rid the country of the Shinawatra family's populist policies.

Mr. Thaksin's sister, Ms. Yingluck, who was elected prime minister in 2011 in a landslide election, was removed earlier this month by a court ruling stemming from improperly removing a senior bureaucrat from his job three years ago.

Photos

Army Chief Gen. Prayuth Chan-ocha, center, announces on national TV that after the military was taking control. Agence France-Presse/Getty Images

Political disruptions curbed Thailand's economic growth rate last year to 2.9%. That was well behind the 7.2% posted by the Philippines, 5.8% in Indonesia and 5.4% in Vietnam.

This year could be worse: In the first quarter, the economy shrank 2.1% compared with the last three months of 2013. Growth in per capita GDP, which rose from $100 in 1961 to $4,800 in the early 2000s, has slowed dramatically. Foreign direct investment has fallen to levels below competitors such as Indonesia.

Traffic problems that gripped Bangkok in the 1980s have recently returned largely because of a lack of investment in roads, a failure in stark evidence Thursday when commuters rushing to get home ahead of the curfew jammed Bangkok's main arteries after the capital's train was forced to close early.

From the Archives: Thailand's Key Players

The tourism industry, which has had a resilience that earned the country the nickname "Teflon Thailand," saw the number of visitors shrink by almost 400,000 in the first four months of the year, a decline of about 5% from the same time last year. The number of visitors is expected to fall a further 10% to 12% in May from the previous year, Thailand's tourism department said. The industry accounts for around 9% of gross domestic product—some $35 billion last year—the second-highest percentage in Asia after Hong Kong.

"When you have political instability that's affecting your tourism numbers, that's going to reduce your national income and that will spill over to weakening consumption," CLSA economist Tony Nafte said. "The impact from tourism is one of the key contributors to the economy's overall decline."

Companies that once insisted they were committed to Thailand, despite its periodic disruptions, are increasingly saying they are losing faith.

Auto makers including Toyota Motor Corp.TM0.90% and Honda Motor Co. say they are delaying or rethinking plans for new investments in the country as national car sales plummet, though much of their production is geared toward the export market.

The auto and auto parts industries already laid off about 10,000 people this month, a trade group said. Some analysts expect 30,000 auto workers to lose their jobs this year if the political upheaval persists.

In April, auto production fell more than a quarter from a year earlier to 126,730 cars, while sales declined more than a third to 73,242 cars.

"Thailand has to get its act together," Anthony Chay, president of Thai operations at Siemens,SIEGY1.77% a potential bidder for a high-speed rail project stalled by political wrangling, said before the coup unfolded. Many of the firm's 1,200 workers are working on other projects such as servicing Bangkok's mass transit system.

In a televised address, Gen. Prayuth and other army leaders billed the coup as a chance to reset politics and enact reforms they say are needed to ensure respect for democracy.

But they offered no road map for resolving the standoff between the largely urban middle class and elite protesters and Mr. Thaksin's populist backers, many of whom hail from the rural heartland.

Gen. Prayuth is in a difficult spot. He will have a short timeline from supporters of the ousted government to call new elections or risk a potentially violent backlash. But the other protesters, who urged him for months to stage a coup, will want him or an interim prime minister to ensure that any future electoral arrangements produce a power structure more favorable to them.

A Bangkok-based think tank, Siam Intelligence Unit, said in a briefing paper that Thailand's partially elected Senate will likely select or endorse a new prime minister in the next few days, and that a military-installed government could run the country for as long as two years.

Among the government's tasks would be to work on a new constitution to replace or amend the 2007 charter that the military suspended Thursday and which could include restrictions on the kinds of populist pledges employed by the previous administration.

Thailand's revered King Bhumibol Adulyadej, now 86 years old, hasn't weighed in on the coup. A constitutional monarch with little formal power but vast moral authority, in the past he has signed off on military takeovers after the fact.

Thursday's was the 19th coup attempt since Thailand ended absolute monarchy in 1932. But takeovers had become rare in the last two decades, until the coup that toppled Mr. Thaksin, who built the strongest political machine the country has known and is considered brash by many Thais.

Many Bangkok residents were calm after the takeover.

ENLARGE

A soldier helps a woman carry her belongings.
Associated Press

"Since the conflict between the two groups remains unresolved, having someone to step in and put an end to it is good," said Tueanjit Putipongpokai, 29 years old, who said she was hoping to take some photos with soldiers. "I don't think the situation can be any worse than it has already been although I didn't expect the coup to take place this soon."

The constitution was suspended except for articles concerning the monarchy.

While the stock market was closed when the military confirmed its coup, the baht moved lower against the U.S. dollar and changed hands late Thursday at 32.54 per dollar compared with 32.47 a day earlier.

Thailand's financial markets have remained resilient, but investors aren't taking the country's ability to bounce back from crisis for granted. The benchmark stock index is 8% higher year-to-date, one of Asia's top performers. Investors say Thailand's long-term economic prospects are solid. The stock market shed nearly 3% in the two weeks after a coup in 2006, only to rebound more than 5% in the following month.

"The initial reaction is probably going to be negative," said Julian Mayo, co-chief investment officer at Charlemagne Capital UK Ltd., an emerging markets investor that manages around $2.6 billion globally. "We are following it closely," he said, but added that coups in Thailand are not uncommon. "You need to be a skeptic to invest in emerging markets," he said.

ENLARGE

Thai soldiers clear pro-government Red Shirt demonstrators who had been rallying on the outskirts of Bangkok on Thursday.
European Pressphoto Agency

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